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Bcom 211: Intermediate Accounting I Question Paper
Bcom 211: Intermediate Accounting I
Course:Bachelor Of Commerce
Institution: Egerton University question papers
Exam Year:2012
INSTRUCTIONS
• This paper contains four questions.
• Answer question one and any other two questions.
• Show all the necessary workings;
• Do not write on the question paper. You can use the last page of the answer booklet for your rough work. Cancel the rough work.
Question One
a) Explain, with examples, each of the following terms:
i) Fundamental accounting concepts
ii) Accounting bases. (4 marks)
b) If the information in financial statements is to be useful, regard must be given to the following:
i) Materially
ii) Prudence
iii) Objectivity
Required:
Explain the meaning of each of these factors as they apply to financial accounting including in your explanation one example of the application of each of them.
(6 marks)
c)Goodwill can be classified both as acquired intangible asset and internally generated intangible asset. Using examples explain these types of goodwill and state how each type is treated in the books of accounts. (6 marks)
d)Briefly discuss three reasons why cash flow statements are better than income statements.
(6 marks)
e) The following relates to trade accounts receivable of Kaleche Ltd in the year 2007.
i) Sold sh.900, 000 worth of goods on terms 2/10 n/30
ii) Return inwards amounted to sh.60, 000
iii) Received payments for sales of sh.600, 000 within discount period and $100,000 after discount period.
iv) It is estimated that at the end of the year 2005, 35% of the outstanding accounts
receivable will not be paid within the discount period.
Required
Journal entries to record the transaction and the receivable accountant the end ofthe period using gross sales method. (8 marks)
QUESTION TWO
Pentand Limited compiles its financial statements for the year to 3 l" December each year. At January 1st 2000 the company''s balance sheet included the following figures:
Accumulated Net book
Cost Depreciation Value
£000 £000 £000
Land 4,000 Nil 4,000
Buildings 1,200 144 1,056
Plant and machinery 1,600 600 1,000
Motor vehicles 600 200 400
Depreciation charged at the following annual rates (all straight line)
Land Nil
Buildings 2%
Plant and machinery 15%
Motor vehicles 20%
Depreciation charge is made in full in the year of purchase and nil in the year of sale of an asset. During the year ended December 2000 the following transactions took place.
I. I January 2000 the company decided to adopt a policy of revaluing its buildings; and they were revalued to £ 1.4m
2. I January 2000 plant which has cost £300,000 was sold for £50,000. Accumulated depreciation on this plant at amounted to £230,000. New plant was purchased at a cost of £400,000.
3. 1 April 2000 a new motor vehicle was purchased for £30,000. Part of the purchase price
was settled by part exchanging another motor vehicle, which had cost £20,000, at an agreed value of £ 12,000. The balance of £ 18,000 was paid in cash.
4. The motor vehicle given in part-exchange had a net book value (cost less depreciation) at 31 st December 1998 of £ 1 0,000.
Required:
Prepare the following ledger accounts for the year ended 31 st December 2000.
a) Building account and provision for depreciation on buildings account. (5 marks)
b) Plant and machinery account and provision for depreciation on plant and machinery
accounts. (4 marks)
c) Motor vehicle account and provision for depreciation on motor vehicle accounts.
(5 marks)
d) Disposal of plant and machinery account. (2 marks)
e) Disposal of motor vehicle account. (2 marks)
f) Buildings revaluation account. (2 marks)
(Total: 20 marks) Question Three
a) What is the distinction between cost and neat realizable value as used in valuation of
stock? (4 marks)
b) A firm has a closing stock of sh.300, 000 (cost) out of which stock valued sh.20,000 is damaged. This stock can fetch the firm sh.22, 000 after repairs and packaging that will cost sh4, 000.
c) What value will be attached on the total closing stock for the final accounts purposes? (4 marks)
d) c) A firm has the following transactions with its products during the month of January.
Opening inventory 53 units at 290
1st Jan Purchases 10 Units at £300
5th Jan Purchases 12 Units at £250
10th Jan sales 8 Units at £400
15th Jan purchases 6 units at £200
18th Jan sales 12 units £400
20th Jan Purchases 10 units at £200
23rd Jan sales 5 units at £400
25th Jan purchases 12 units at £150
29th Jan sales 25 units of £400
e) The company uses continuous stock taking methods. Required
f) Determine the value of stock at the end of he month and the gross profit during the month using
g) the weighted average methods. (12 marks) (Total: 20 marks)
QUESTION FOUR
The following financial statement relates to Millennium Plc for its first year of operation.
Millennium Limited
Profit and Loss account for the year ended 31st Dec 2009
Turnover 7,500,000
Gross profit 4,000,000
Distribution expenses 700, 000 3,500,000
Administration expenses 875,000 (1,575,000)
Operating profit 1,952,000
Intere (250,000)
Profit before tax 1,675,000
Taxation-current 376,000
Deferred 60,000 (436,000)
Profit after tax 1,239,000
Dividends-interim paid 75,000
Final proposed 300,000 375,000
864,000
Balance sheet as at 31st December
Sh. Sh.
Fixed assets
Land and buildings cost 1,800,000
Other fixed assets at net book value 2,600,000
4,400,000
Current assets
Stocks 2,950,000
Paid expenses 60,000
Debtor (net) 864,000
Bank 150,000
4,024.000 Current liabilities
Current portion of long-term debt 625,000
Creditors 490,000
Accrued expenses 90,000
Taxation 120,000
Dividend 300,000
1,625,000
Net current assets 2,399,000
6,799,000 Financed by
Shareholders funds
Share capital 4,000,000
(200,000 ordinary shares of sh.20 par).
Profit and loss account 864,000
4,864,000
Long-term debt 1,875,000
Deferred tax 60,000
6,799,000 Additional information
i) The company was incorporated on l" January 2009 by an issue for cash of 200,000 ordinary shares. (Sh.20 par) it commenced operations immediately.
ii) An amount of sh.159, 000 which is included in creditors, related to acquisition of fixtures and fittings. The balance is in respect to trade creditors.
Ill) The long term loan was borrowed from bank 1st February l998 It IS payable at the end of each year in five equal installments of sh.625,000 plus interest at 8 percent per annum the unpaid balance.
iv) The cost of fixed asset acquired in the year is sh 4,800,000. There were no disposals during the year.
Required:
a) Prepare a cash flow statement for the Company for the ended 31 st December 2009 in
Accordance with lAS7. Use the indirect method. (16 marks)
b) Comment on the position revealed by the cash flow statement prepared in (a) above, showing clearly the cause of the differences between profit for a period and change in cash over the same period.
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